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Monetary policy in exceptional times

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  • Lenza, Michele
  • Pill, Huw
  • Reichlin, Lucrezia

Abstract

This paper describes the way in which the European Central Bank (ECB), the Federal Reserve and the Bank of England conducted monetary policy since the beginning of the financial crisis, in August 2007. We argue that both quantitative easing - and the other non-standard measures introduced by central banks that changed the composition of the asset side of their balance sheets (so-called "qualitative easing") - acted mainly through their effects on interest rates and, in particular, on money market spreads, rather than solely through "quantity effects" in terms of the money supply. We perform a quantitative exercise on the euro area which estimates the effect of the reduction of these spreads to the broader economy.

Suggested Citation

  • Lenza, Michele & Pill, Huw & Reichlin, Lucrezia, 2010. "Monetary policy in exceptional times," CEPR Discussion Papers 7669, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7669
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    References listed on IDEAS

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    1. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
    2. McAndrews, James & Sarkar, Asani & Wang, Zhenyu, 2017. "The effect of the term auction facility on the London interbank offered rate," Journal of Banking & Finance, Elsevier, vol. 83(C), pages 135-152.
    3. Shigenori Shiratsuka, 2010. "Size and Composition of the Central Bank Balance Sheet: Revisiting Japan's Experience of the Quantitative Easing Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 79-106, November.
    4. De Mol, Christine & Giannone, Domenico & Reichlin, Lucrezia, 2008. "Forecasting using a large number of predictors: Is Bayesian shrinkage a valid alternative to principal components?," Journal of Econometrics, Elsevier, vol. 146(2), pages 318-328, October.
    5. Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2010. "Business Cycles in the Euro Area," NBER Chapters, in: Europe and the Euro, pages 141-167, National Bureau of Economic Research, Inc.
    6. James B. Bullard, 2010. "Three lessons for monetary policy from the panic of 2008," Review, Federal Reserve Bank of St. Louis, vol. 92(May), pages 155-163.
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    More about this item

    Keywords

    monetary policy; quantitative easing;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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